Creative accounting and Michigan’s weak safety net

This year, as the welfare reforms instituted under President Clinton turned 20, NPR’s Marketplace started a podcast called the Uncertain Hour, which takes a deep look at the consequences of those reforms. And in the fourth episode, Michigan takes a starring role.

First, some background. In 1996, the United States ended Aid to Families with Dependent Children (AFDC), otherwise known as welfare, and replaced it with the TANF program we have today, or Temporary Assistance for Needy Families. While AFDC was an entitlement program (if you qualified, you were entitled to aid), TANF took the form of block grants to states, with aid subjected to lifetime limits and tied to work requirements.

As the podcast notes, one of the problems with the block grants is that they ended up being excessively flexible. So while the block grants are ostensibly given to states in order to help the poor, Michigan uses some of the grants to give college scholarships to middle-class students.

How is that possible? Under the 1996 reforms, state and federal TANF funds could be spent on one of four purposes: (1) cash assistance (2) work-related supports such as job-training or job search programs, (3) preventing out-of-wedlock pregnancies, and (4) encouraging the formation of two-parent families.

It’s these final two categories where Michigan’s welfare spending gets worrisome. Putting aside the debate of whether government promotion of two-parent families is an effective anti-poverty tool, these two purposes can be defined so broadly as to allow seemingly any government expenditure to fall under their classification. The specious reasoning for giving TANF money to middle-class college students, for example, is that since those with college degrees are less likely to have children out of wedlock, this money can be classified as welfare spending. The causal leaps make your head spin.

In actuality, of course, this is simply the state using resources that should be providing a safety net for Michigan families to plug holes in the state budget.

And this is only the beginning. In 1996, at the time of welfare reform, Michigan spent 80% of its TANF funds (roughly $1.2 billion annually in federal and state funds) on core safety-net purposes: cash assistance, work activities, and child care assistance. Michigan now spends only 20% of its annual $1.2 billion on these core safety-net programs, while spending over a third of the funds, about $500 million in 2014, on programs creatively classified under marriage promotion and the prevention of out-of-wedlock pregnancies. In other words, these final two categories became a catchall, allowing the state to use welfare funds to supplant pre-existing state spending, rather than spending those funds on the cash support, work activities, and child care assistance that can help poor Michigan families get back on their feet.

While that’s bad enough, the story only gets worse. In addition to the creative classification of funds described above, the state also began counting spending from non-state entities as TANF spending. What this means is that youth programs in Wayne County, spending by the United Way, and various foundation grants – money that was already being spent on Michigan’s poor by non-governmental organizations – was suddenly counted as a government expenditure.

So what should we do? What we don’t need is more creative accounting, but an actual investment in Michigan’s poor. For years, Michigan Future has described the shifts in our economy, and the characteristics of the people and places that are successful in this new economy. However, we also need to support those that have not experienced success: those that haven’t amassed the skills and education valued in an increasingly knowledge and service-based economy. Many in that group need exactly what TANF was designed to deliver: temporary cash assistance while they get back on their feet, meaningful activities that will build skill and reduce barriers to employment, and quality child care.

I’m all for college scholarships, but it shouldn’t come out of the money meant to help poor Michiganders back on their feet.

Patrick Cooney was a policy associate for Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future's mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy.